Alacare Home Health Services, Inc. - Page 4




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          C.   Medicare Guidelines and Petitioner’s Expensing Policy                  
               Petitioner was incorporated in 1982.  Since then, petitioner           
          has expensed all capital items for which it paid less than $500.            
          Petitioner followed that practice in 1995 and 1996.  Its                    
          expensing policy complies with Medicare guidelines for the                  
          capitalization of depreciable assets described above.                       
               The following chart shows the number, total cost, and                  
          average cost of office items petitioner bought in 1995 and 1996             
          which have an expected useful life of one year or longer and                
          which cost less than $500 (the disputed assets):                            
          1995               1996                                                     
          Number of office and computer                                               
          items costing less than                                                     
          $500 each                          2,632               2,381                
          Total cost of office and                                                    
          computer items                     $467,944            $351,543             
          Average cost per item              177.79              147.65               
               Petitioner’s office items included bookcases, chairs,                  
          credenzas, desks, organizers, file cabinets, hutches,                       
          refrigerators, microwaves, serving carts, panels and accessories,           
          tables, telephones, and typewriters.  Petitioner’s computer items           
          included modems, CD ROMs, hard drives, keyboards, motherboards,             
          memory modules, outlets, processors, servers, software, and                 
          terminals.                                                                  









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